Analysts positive on RHB’s efforts to grow SME business

KUALA LUMPUR: Analysts are generally positive on RHB Bank Bhd’s (RHB) efforts to grow the group’s small and medium enterprise (SME) business segment eventhough it is becoming very competitive.

Following a briefing held by RHB on its business banking segment last week, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) highlighted that the group is targeting for SME to contribute 20 per cent to its loans book by 2020 from the current 16 per cent.

“It also targets to jump one place to become the top three bank of choice for SMEs,” MIDF Research noted.

“We believe that the interest in SMEs from banks is due to the segment’s growth outperforming gross domestic product (GDP).”

The research arm pointed out that SME grew 5.2 per cent year on year (y-o-y) versus Malaysian GDP growth of 4.2 per cent y-o-y in 2016.

MIDF Research was positive on RHB’s target to make SMEs the solid contributor to the group’s loans portfolio.

“We view positively at the group’s efforts to grow its SME business segment. Although, it is becoming very competitive with majority of its peers targeting this segment, we opine that the group has a solid base to work on.”

MIDF Research further noted that the group will be targeting the small business segment in the SME sector.

“We believe that this provide the optimum size to risk ratio.”

The research arm also pointed out that the small business segment makes up circa 21.2 per cent of total number of SMEs in Malaysia, and its number grew at compound annual growth rate (CAGR) of 8.4 per cent between 2010 to 2015 versus 7.3 per cent CAGR for the SME segment.

“We understand that there was some cautiousness from businesses following the surprise 14th General Election (GE14) result.

“However, this general cautiousness may have abetted a little as we understand that businesses and SMEs seem to be investing again.

“This is evident by the robust expansion in business loans in the banking system as at August current year 2018 (CY18).”

MIDF Research thus expected business loans to further improve after more clarity in Government policies.

Despite RHB’s move to focus on SMEs, MIDF Research said that the group is not alone in targeting this segment.

“However, it believes that its online application process and fast approval will be a key competitive advantage.

“It had launched an online SME financing platform where approval could be expected in two days and disbursement in five days.”

That said, MIDF Research opined that the group’s proposition is entirely unique. At this juncture, the research arm could not yet gauge on the effectiveness of the platform.